Consider a 10 -year bond with face value $200 that pays coupons at rate 6% per year. Assume that coupons are equal-sized and paid every 6 months, and the next payment is 6 months later. The current yield of the bond is 4%, compounded semiannually (2 compounding periods per year).

(a) Compute the duration D of the bond.

(b) Compute the price of the bond.

(c) If the price of the bond suddenly changes to $220, what is the corresponding yield of the bond right after the change, estimated based on (a) and (b)?

Answer rating: 100% (QA)

To compute the duration D of the bond we first need to calculate the present value of each cash flow and then determine the weighted average of the pr... View the full answer